How Does the SEC Enforce Against ESG Greenwashing?

The Securities and Exchange Commission's engagement with ESG greenwashing has evolved from periodic guidance into an active enforcement program. Between 2022 and 2024, the SEC brought multiple enforcement actions against investment advisers for misrepresenting ESG investment processes, established a dedicated Climate and ESG Task Force within the Division of Enforcement, and proposed new rules requiring registered investment advisers to substantiate ESG claims with specific disclosures. The enforcement record demonstrates that ESG misrepresentation — claiming ESG analysis was conducted when it was not, or describing ESG processes in ways that did not match actual practice — creates securities law liability even without intent to defraud.

Quick definition: SEC ESG enforcement refers to the Securities and Exchange Commission's use of existing securities law (primarily the Investment Advisers Act and Investment Company Act) and new regulatory requirements to hold fund managers accountable for misrepresentations in their ESG investment disclosures, marketing materials, and regulatory filings.

Key takeaways

• The SEC's Climate and ESG Task Force, established in March 2021, coordinates ESG-related enforcement across the Division of Enforcement, signaling that ESG misrepresentation is a priority enforcement area.
• The 2022 SEC Risk Alert on ESG investing identified specific deficiencies found in examinations: portfolio management practices that did not align with disclosed ESG approaches, proxy voting inconsistent with ESG principles, and misleading ESG-related disclosures.
• Enforcement actions against BNY Mellon ($1.5 million, 2022) and Goldman Sachs Asset Management ($4 million, 2023) established that investment advisers can face securities fraud liability for factual misrepresentations about ESG investment processes — even when the misrepresentation was procedural rather than intentional deception.
• The SEC's 2022 Names Rule amendments require funds using ESG-related names to invest at least 80% in assets consistent with the name — the most direct rule change addressing fund-level ESG misrepresentation.
• ESG enforcement extends beyond fund managers: the SEC has also pursued climate-related disclosure enforcement against public companies, and its proposed climate disclosure rule (currently under legal challenge) would standardize material climate disclosures for all public companies.

The Climate and ESG Task Force

In March 2021, the SEC Division of Enforcement established the Climate and ESG Task Force, comprising 22 enforcement lawyers with a mandate to identify and prosecute ESG-related enforcement matters. The Task Force's stated priorities include:

• Material gaps or misstatements in issuers' disclosures of climate-related risks
• ESG-related misconduct by investment advisers, registered investment companies, and investment companies that have not registered
• False or misleading statements about ESG investment processes or criteria

The Task Force works alongside the Office of Compliance Inspections and Examinations (OCIE), which renamed itself the Division of Examinations. The Division's ESG examinations have focused on registered investment advisers managing ESG funds and on robo-advisers offering ESG portfolios.

The 2022 Risk Alert: What Examiners Found

The SEC's April 2021 and March 2022 Risk Alerts on ESG investing synthesized findings from examinations of investment advisers and funds claiming ESG credentials. The alerts identified common deficiencies:

Portfolio management inconsistencies: Funds described their ESG selection criteria in marketing and regulatory filings, but actual portfolio construction did not consistently apply those criteria. ESG review was conducted for some positions but not all; exclusion screens were applied inconsistently; companies that clearly failed stated ESG criteria were held without documented rationale.

Proxy voting misalignment: Funds claiming to promote environmental or social characteristics voted against environmental or social resolutions at annual meetings without documented rationale for why proxy votes were consistent with the ESG investment approach.

Inadequate policies and procedures: Investment advisers had adopted ESG policies required by their marketing positions but had not implemented compliance procedures to ensure those policies were actually followed in portfolio management. This gap between documented policy and actual practice was the most common deficiency.

Misleading ESG definitions: Some advisers used the term "ESG integration" in a way that implied more rigorous ESG analysis than was actually conducted — claiming integration when ESG data was only one among many factors, or when ESG analysis was conducted by a third party that provided ratings without the adviser conducting independent analysis.

Third-party data reliance: Advisers relied on ESG ratings from third-party providers without documenting whether those ratings aligned with the adviser's stated ESG criteria. Simply purchasing MSCI ESG scores was described as "ESG analysis" when the fund's stated ESG approach implied proprietary analysis.

Enforcement Actions

BNY Mellon Investment Adviser (2022)

In May 2022, the SEC settled an enforcement action against BNY Mellon Investment Adviser, Inc. for $1.5 million. The SEC found that from July 2018 through September 2021, BNY Mellon misrepresented that all investments in certain funds it managed had undergone an ESG quality review as part of the investment selection process — when in fact numerous investments had not been reviewed with an ESG quality review tool.

The SEC found violations of the Investment Advisers Act of 1940, Sections 206(2) and 206(4), and Rule 206(4)-8 (which prohibits making false statements to fund investors). The key fact pattern: BNY Mellon's marketing materials and regulatory filings stated that investments were selected using a proprietary ESG quality review; the review was actually conducted using a third-party tool; and many holdings had not been processed through that tool before being included in the portfolio.

The BNY Mellon case established that factual accuracy about ESG processes is required — the misrepresentation was not about whether ESG was important or whether the fund was "green enough," but whether a specific claimed process was actually conducted.

Goldman Sachs Asset Management (2023)

In November 2022 (announced publicly February 2023), the SEC settled an enforcement action against Goldman Sachs Asset Management for $4 million. The SEC found that from April 2017 through February 2020, Goldman Sachs Asset Management (GSAM) had significant policy and procedure failures that led the firm to deviate from its ESG criteria for certain ESG funds.

Specifically, GSAM's policies required that companies in ESG funds be evaluated against ESG risk indicators before investment, that certain red-flag companies be excluded from the ESG research universe, and that portfolio managers document ESG analyses. The SEC found that for a period, GSAM failed to follow these policies: ESG screens were not consistently applied, red-flag exclusions were not consistently enforced, and documentation was inadequate.

Unlike the BNY Mellon case, which turned on a factual misrepresentation about a specific process, the Goldman Sachs case established that internal compliance failures that result in marketed ESG policies being inaccurate create securities law liability even without deliberate misrepresentation. The fund's disclosures said it applied ESG criteria; the compliance failures meant those criteria were not consistently applied; that gap created liability.

SEC vs. DWS (parallel to BaFin investigation)

The SEC's investigation of DWS Group's US subsidiary ran parallel to BaFin's investigation of DWS's German operations. The US investigation, which resulted in a $25 million settlement in September 2023 (combined with BaFin settlement), focused on ESG claims in DWS's US fund offerings and disclosures. The DWS case — involving a former chief sustainability officer as whistleblower — is examined in detail in the DWS Case Study.

SEC enforcement process flow

The Names Rule Amendments (2022)

The SEC's amendments to Rule 35d-1 under the Investment Company Act — the "Names Rule" — represent the most direct regulatory change addressing fund-level ESG misrepresentation. The amendments, adopted in September 2023, require:

80% investment policy: Funds with names suggesting a focus on particular investments (including ESG, sustainable, responsible, green, climate, and related terms) must adopt a policy of investing at least 80% of their assets in investments consistent with the fund's name.

Plain English definitions: The fund must define in its prospectus what criteria it uses to determine whether an investment is "consistent with the fund's name" — making the standard against which compliance is measured explicit and investor-accessible.

Quarterly reporting: Funds must assess compliance with the 80% policy at least monthly and report holdings data quarterly, enabling investors and regulators to verify ongoing compliance.

The Names Rule addresses the "ESG name without ESG substance" problem identified in fund-level greenwashing analysis — a fund calling itself "Sustainable Leaders" cannot hold conventional corporate bonds and large-cap stocks with no sustainability criteria as 80%+ of the portfolio.

Proposed ESG Disclosure Rules

In May 2022, the SEC proposed rules specifically addressing ESG disclosure requirements for registered investment advisers and investment companies (Release No. IA-6034 / IC-34594). Key proposed requirements:

Three-tier disclosure framework:

• "Integration" funds (ESG factors considered but not necessarily determinative): must disclose how ESG factors are incorporated
• "ESG-focused" funds (ESG strategy is the primary consideration): must provide more detailed disclosure including specific ESG criteria, data sources, and proxy voting approach
• "Impact" funds (seeking measurable ESG impact): must disclose impact objectives, methodology for measuring impact, and periodic impact reporting

Portfolio carbon footprint disclosure: ESG-focused and impact funds focused on environmental factors must disclose their portfolio carbon footprint — the weighted average carbon intensity of the portfolio.

PAI-like disclosure: ESG-focused funds must disclose how their investment selection process considers principal adverse impacts, using a subset of metrics similar to SFDR's PAI indicators.

The proposed rules faced significant industry pushback and legal challenge. As of 2025, implementation remained uncertain. However, the proposal signals the SEC's direction: ESG claims should be subject to specific, standardized disclosure requirements rather than general anti-fraud rules alone.

Real-world examples

Active Integrity Systems (2023): The SEC's enforcement reach extended to a smaller investment adviser that marketed an ESG investment program while making misrepresentations about how ESG factors were actually integrated. The case demonstrated that ESG enforcement was not limited to major financial institutions.

First enforcement action against a public company for climate disclosures (2022): The SEC charged Brazilian oil company Petrobras with making material misstatements in SEC filings about its climate commitments and carbon-reduction programs. While not a fund case, this action demonstrated that ESG enforcement extends to corporate climate disclosures as well.

Common mistakes

Assuming ESG enforcement only applies to egregious fraud: The BNY Mellon and Goldman Sachs cases involved no intentional deception — they were cases of process failures and documentation gaps. Investment advisers with good-faith ESG intentions but inadequate compliance procedures face enforcement risk.

Treating vague ESG language as safe harbor: "We consider ESG factors" is not a safe description if the fund's name or marketing implies comprehensive ESG integration. The more specific the ESG claim, the more specific the obligation to substantiate it — but vague language that creates misleading impressions can still violate anti-fraud rules.

Ignoring the Names Rule's definitional requirement: The 80% policy alone is not sufficient. The Names Rule also requires defining what "consistent with the name" means — funds that satisfy the 80% threshold using a broad or poorly defined criterion may still face challenges.

FAQ

Can the SEC require companies to disclose climate risk?

The SEC has authority to require material climate risk disclosures under existing securities law principles (materiality requires disclosure of information that a reasonable investor would consider important) and under its rulemaking authority. The SEC's March 2022 proposed climate disclosure rule would require standardized climate disclosures from all public companies. Legal challenges (primarily from energy-sector issuers) have slowed implementation, but the SEC's ability to require material climate disclosure is established legal authority.

What does the SEC expect from ESG fund disclosures today?

Under current rules (as of 2025, absent implementation of proposed ESG-specific rules), the SEC expects ESG fund disclosures to be accurate and not misleading under the general anti-fraud provisions of the Investment Advisers Act. This means: disclosed ESG processes must be the ones actually used; ESG criteria mentioned in marketing must be actually applied; and claims about ESG analysis must correspond to analysis that is actually conducted. The Names Rule adds the 80% requirement for funds with ESG-related names.

How does SEC enforcement compare to EU enforcement under SFDR?

SEC enforcement uses anti-fraud provisions under existing securities law — if you misrepresent your ESG process, you've violated securities law. EU enforcement under SFDR is classification-based — if your fund doesn't meet Article 8/9 criteria, it must be reclassified. The SEC approach is more punitive (fines, cease-and-desist) but requires proving misrepresentation; SFDR enforcement is more administrative (required reclassification, correction of disclosures) but applies to any non-compliance regardless of intent.

Has the SEC won any contested ESG enforcement cases?

As of 2025, most SEC ESG enforcement actions have resulted in settlements rather than contested litigation. The BNY Mellon and Goldman Sachs matters were settled without admission of wrongdoing. The DWS matter involved settlements on both sides of the Atlantic. SEC enforcement in ESG has relied primarily on settlement rather than jury trials, meaning that contested judicial interpretation of ESG fraud standards has not yet developed extensive case law.

Related concepts

• Fund-Level Greenwashing
• SFDR and Greenwashing
• DWS Case Study
• Legal Liability for Greenwashing
• Future of Greenwashing Rules
• ESG Glossary

Summary

The SEC's ESG enforcement program has moved from guidance to active enforcement through the Climate and ESG Task Force, the 2022 Risk Alerts, and enforcement actions against BNY Mellon ($1.5 million) and Goldman Sachs ($4 million). These cases established that both factual misrepresentation about ESG processes (BNY Mellon) and compliance failures that prevent stated ESG policies from being followed (Goldman Sachs) create securities law liability. The Names Rule's 80% investment policy requirement addresses fund-level ESG name misrepresentation directly. Proposed but not yet implemented ESG disclosure rules would require investment advisers to disclose ESG criteria, data sources, and portfolio carbon metrics — creating a more comprehensive accountability framework beyond general anti-fraud principles.

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